Fair Housing and Owner Financing Questions... - Posted by HR

Posted by HR on February 28, 2001 at 19:31:13:

Hi Jim,

Thanks for the response. I like tailoring the option and financing based on the buyer’s total picture; I’m going to remember that.

With regard to Fair Housing law, I probably have it wrong, but I thought I remembered Jeffrey Taylor harping on the point that 1) all landlords have criteria for renting their units; 2) unwritten criteria can land one in trouble, since it’s more difficulty to prove objectivity; 3) if one does have written criteria, then the first applicant who passes the minimum threshold must be offered the apartment first.

Obviously, there are real world ways around this. I advertise the apartment, steer the callers to a voicemail, advertise an open house, and take aps at the open house. Taylor suggests using a number system for applicants received. I think that’s asking for trouble. I just date them all the same date; how do I know who was first, second, third, etc? That way, I can take the best from that batch and claim it was the first to pass the threshold.

Frankly, I am aware that Mr. Landlord is teaching the ideal, which isn’t always practical. I know that. I think taking reasonable steps to stave off an unnecessary lawsuit, though, is prudent. While I don’t suspect I will have many testers for my property, and while most of my applicants are minorities anyway (with section 8 vouchers, of late), this ain’t a real high concern on the priority list. Nonetheless, if I can take a few moments to quell even the perception of any bias, it’s worth it.

I just had never considered all this in the context of a lease option before. Frankly, I can’t even get to the point where I have all my criteria written up. Just food for thought.

Perhaps someone else will weigh in on this Fair Housing issue.

Thanks for the thoughts. See you in Atlanta.


Fair Housing and Owner Financing Questions… - Posted by HR

Posted by HR on February 28, 2001 at 06:34:21:

Hey Folks,

I have a question regarding the Fair Housing laws and owner financing issues. I think I know the answer, but I’d like to check it out, anyway.

As we are all aware, the fair housing statutes are designed to protect tenants from discriminatory landlords. In particular, it is recommended that landlords have 1) a clear, written criteria of the standards all applicants need to have to rent any available apartment; 2) the first qualified applicant (who is not necessarily the best applicant received) who meets those criteria should then be offered the apartment first. (Just reviewing the basics to make sure we are all on the same page…)

Do I have to follow this same criteria when selling a property with owner finance?

Let’s look at a couple scenarios:

  1. I sell a property outright on an installment land contract to a buyer. What I like in the Fair Housing process is the attempt to have a clear, non-discrimnatory process. I like the written guidelines that serve to filter the applicants. When followed consistently, I think that process can actually protect from potential, frivolous lawsuits. Like any landlord, though, I just don’t like when I have to give it to the first qualified applicant, and not the best applicant.

In the case of an owner financed installment land contract, can I sell my property to the BEST applicant I get? Can I advertise that my criteria is to actually sell the property to the BEST applicant (according to my published criteria, which would be financial strength, time on job, credit score, etc. Best in this case is not a code word for any racial or family group). I believe I can, but I want to make sure I engage in a non-discrimnatory process.

Case #2: I sell a property first with a lease option, and then sell on the back end with an installment land contract. Again, Do I have to take the first qualified according to my criteria, or can I take the best?

My hunch is, because it is a lease with an option to purchase, but a lease nonetheless, I must provide the home to the first applicant who qualifies for the home. In this case, I need to make sure my criteria are sufficient so that I would want the first acceptable applicant.

Any thoughts? Am I making an issue out of a non-issue? I think the real issue at heart here is 1) coming up with the right criteria for selling with owner finance; 2) following a process that is truly non-discrimnatory, and documentable as such.

All advice welcome.


Re: Fair Housing and Owner Financing Questions… - Posted by JPiper

Posted by JPiper on February 28, 2001 at 09:15:10:


I would not consider myself an expert on Fair Housing laws…but this idea of “first” versus “best” is one I’m wondering about the circumstances and how YOU are applying it.

For example, there is absolutely nothing in the Fair Housing laws that I’m aware of that precludes me from discriminating amongst either tenant or buyers based on credit. Let’s say for example that an applicant gives me an application at 9AM. I begin my due diligence on this applicant, which includes amongst other things running a credit report. Now at 11AM I receive another application, and begin the same process. And at 1PM I receive a third application and begin my process.

The next day I have completed checking the three applicants. Let’s assume that applicant #3 has the highest credit score…but that ALL of the applicants have met your basic criteria, and that ALL things are more or less equal in the qualifications other than credit. Don’t know about you but I’m going to pick applicant #3…because the credit is better. And I believe I have that right under existing Fair Housing laws. And one of the advantages of credit scores is that they give a NUMBER to the score, which can be compared with other numbers. In other words, the criteria can be objective. My point though is that I don’t think I’m precluded from taking the “best” applicant in this case over the “first” applicant. Until I have accepted an applicant I continue to take new applications. My process however is only going to take a day or two, so at the end of that period I’m going to make a decision.

In my lease/options my deal is NOT the same to EVERY applicant. There’s a reason. My option consideration is going to vary based on the applicants credit history, type and length of employment, income, and prior rental references. Again, I don’t think I have to offer the same terms on a lease/option to all candidates, anymore than lenders have to give all applicants the same interest rate or the same down payment.

Further, I tell people that sometimes I will owner finance the option exercise. BUT, I do it based on certain criteria. One of those is their PERFORMANCE on the lease/option agreement. Another is my need for cash at the moment. Now I think these are two legitimate factors involved in whether I’m going to want to owner finance a tenant/buyer somewhere down the road…and they are two factors that I can’t possibly know upfront. Therefore, I don’t put that in writing for anyone…I just mention it verbally as a possibility down the road, as an incentive perhaps to create better performance on their part.

Now again, I’m not an expert on Fair Housing…so if you see some violations within any of this let me know.